China's export controls on rare earths are bad for business, but good for Beijing

China's export restriction on rare earths has brought the global auto supply to a standstill and the U.S. president Donald Trump to the negotiation table. They're a major headache for businesses in the United States, who are already suffering from a slowing economy.

Beijing cut rare earth and magnetic exports in April as a retaliation to U.S. Tariffs. This has led to a drop in magnet makers' overseas sales, at a time when they are also facing pressure from an economy that is weak and EVs, one of their main markets.

Even after the U.S. announced on June 27, a deal with China to restart rare earths production, it is unlikely that magnet makers will see any relief anytime soon.

In a WeChat post 12 hours after the announcement, Baotou Rare Earth Products Exchange (a state-backed trading site) noted that stock was piling up at warehouses.

Export curbs caused a 75% decline in magnet exports within two months of the restrictions being imposed, and several automakers were forced to temporarily halt production.

In May, Baotou Exchange, located in Inner Mongolia and one of China's rare-earth hubs, stated that the restrictions had caused a crisis for local magnet manufacturers.

Public filings reveal that while China consumes 90% of rare earth magnets worldwide, exports will range from 18% to 50 % of revenue by 2024 for the 11 largest publicly traded magnet producers based on capacity.

Ellie Saklatvala is the head of metal prices at commodities information provider Argus.

They have temporarily lost a large part of their clientele, and there is no guarantee that they will ever regain this customer base.

Few major listed companies that deal with rare earths have directly commented on how the controls may affect their business.

Two rare earth magnet manufacturers, who spoke on the condition of anonymity due to the sensitive nature of this issue, said that revenue was expected to drop in 2018.

It's difficult to say how much we will lose for the moment, but it will be a big impact on our export business," said one rare earth magnet producer, who requested anonymity because of the sensitive nature of the issue.

According to a second source who declined to give their name, small and medium sized producers reduced production by 15% between April and May.

EXPORT CURBS IMPACT UNDERESTIMATED

China's rare-earth magnet manufacturers are also victims of their own success, much like the U.S. chipmaker Nvidia.

In April, after the announcement of export restrictions, the share prices of listed magnet manufacturers plummeted. They were caught in the geopolitical crossfire between Washington's tariffs on imports and China's response. They have recovered from their lows in the last three months.

Cory Combs is the head of Trivium China's critical mineral research. He said that there was no reasonable forecast for the future of this industry.

He said: "I can see different market outlooks that are more or less positive depending on assumptions. But none of them result in a sustained rise in the share price as we are seeing."

He said that many magnet manufacturers are also privately owned, and therefore share prices can only give a limited picture.

Many producers were already facing weaker conditions in their home countries, such as a price battle among electric vehicle manufacturers, a key segment of customers, which has seen manufacturers demanding discounts from suppliers.

Four sources, who spoke anonymously, said that the highly customized nature of magnet products made it difficult to resell them domestically. This forced magnet makers to keep the cargos in storage while they waited for licenses.

CONSOLIDATION MAY BE IMPACTED BY DIFFICULTIES

In its annual report, released late April, Baotou Tianhe Magnetics Technology Co reported the export restrictions and warned that export revenues could fall if the global situation worsened.

Yantai Zhenghai Magnetics announced last week that it had obtained export licenses, and that production was as usual. Investors are referred to the upcoming financial filings of Yantai Zhenghai Magnetics for more specific results.

According to Argus, Saklatvala, a return to the old status quo will be unlikely if rare earth controls are implemented similarly to those for other critical minerals such as germanium and Antimony.

China implemented export controls on antimony and germanium in 2023 and 2024. Customs data show that despite the fact that most of these materials are used by civil industries which should have no problem obtaining licenses in theory, exports still haven't recovered.

Europe receives only a fraction of the antimony that it imported from China prior to export controls being imposed in September last year. These shortages have already caused major problems for the lead-acid batteries commonly used in gasoline engines.

Saklatvala said that, "looking at China's recent controls on exports of other critical minerals such as antimony", it was clear that exports can take longer to normalise and resume than anticipated.

David Abraham, an affiliate professor at Boise State University in Idaho, says that the large amount of information requested by authorities is a permanent change to the industry, which will cause delays and increase costs for producers.

He said that "in a sense, it's impossible to go back."

He said that in an industry with hundreds of manufacturers the pressures may lead to a consolidation.

"I don't know if Beijing views that as a negative thing because more consolidation is helpful to control and understand where materials go."

(source: Reuters)